In re Harbour East Dev., Ltd.

In re: HARBOUR EAST DEVELOPMENT, LTD., Debtor.

Case No. 10-20733-BKC-AJC

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA

Dated: May 21, 2012

ORDERED in the Southern District of Florida on May 21, 2012.

_________________

A. Jay Cristol, Judge

United States Bankruptcy Court

Chapter 11

MEMORANDUM OPINION AND ORDER GRANTING CHAPTER 7 TRUSTEE'S

MOTION TO (A) COMPROMISE CONTROVERSY AND APPROVE GLOBAL

STIPULATION OF SETTLEMENT BETWEEN JOEL TABAS, AS CHAPTER 7

TRUSTEE FOR THE ESTATE OF HARBOUR EAST DEVELOPMENT, LTD., AND

7935 NBV, LLC, AND (B) SELL REMAINING PERSONAL PROPERTY FREE AND

CLEAR OF LIENS, CLAIMS AND ENCUMBRANCES

This matter came before the Court for hearing on April 18, 2011 at 2:00 p.m. upon the Motion to (A) Compromise Controversy and Approve Global Stipulation of Settlement Between Joel Tabas, as Trustee of the Estate of Harbour East Development, Ltd., and 7935 NBV, LLC, and (B) Sell Remaining Personal Property Free and Clear of Liens Claims and Encumbrances[ECF No. 656] (the "Motion") filed by Joel Tabas in his representative capacity as the duly appointed chapter 7 trustee (the "Trustee") of the bankruptcy estate (the "Estate") of Harbour East Development, Ltd. ("Harbour East" or the "Debtor") and the Response in Opposition [ECF No. 667] (the "Response") filed by the Debtor and certain of the Debtors' estate professionals that are the holders of chapter 11 administrative claims against the Estate¹ (collectively, the "Objecting Parties"). Secured Creditor and mortgage holder 7935 NBV LLC ("NBV") is party to the proposed settlement and supports its approval.

INTRODUCTION

As set forth in further detail below, the Trustee seeks approval of a global settlement of all of the remaining adversary proceedings and contested matters between the Estate and NBV in exchange for a cash payment of $50,000 from NBV (the "Settlement Amount"). NBV has agreed not to participate in any distribution of the Settlement Amount. The Objecting Parties contend that the "likely net recovery to the [E]state" if the Trustee were to pursue (a) avoidance of NBV's lien on the Debtor's remaining personal property, (b) the avoidance of NBV's lien on purchaser deposits, (c) a surcharge claim pursuant to 11 U.S.C. § 506(c), and (d) appeal of a state court foreclosure judgment would "be much greater than $50,000"; and, therefore the Objecting Parties assert the proposed settlement falls below the lowest point in the range of reasonableness and should be denied.

Although the Court is sensitive to the concerns raised by the Objecting Parties, it is not the role of this Court to substitute its own business judgment for that of the Trustee. Hill v. Burdick (In re Moorhead Corp.), 208 B.R. 87, 89 (1st Cir. BAP 1997), aff'd, 201 F.3d 428 (1st Cir. 1998); In re Vazquez, 325 B.R. 30, 36 (Bankr. S.D. Fla. 2005) (citing In re W.T. Grant Co.,699 F.2d 599, 608 (2d Cir. 1983)) (court is neither to "rubber stamp" trustee's proposals nor to substitute its judgment for that of trustee). Moreover, the Court is not expected to hold a "mini-trial" to determine the merits of each and every claim subject of a disputed settlement, but "must simply be convinced that a trustee's judgment is based upon a sound assessment of the situation." In re Smithey, No. 10-30310, 2011 WL 3102308 at *8 (Bankr. N.D. Ohio (Jul. 25, 2011) (citing In re Schmitt, 215 B.R. 417, 423 (9th Cir. BAP 1997)).

Although, as with nearly any settlement, it is possible that the Estate may achieve a more favorable outcome through litigation, the Court observes that such an outcome requires the Estate to find professionals willing to take on such litigation on a de facto contingency basis,² to prevail at an appellate level on claims that this Court has previously rejected, and to successfully prosecute a surcharge claim in connection with professional fees that were incurred by the Debtor over NBV's objection.

The question presented here is not whether the settlement on the terms proposed is objectively better for the Estate than the litigation alternative, nor is the question whether this Court or the Objecting Parties would have made a different decision under the same circumstances - the question is whether the Trustee's decision was reasonable. In re Ashford Hotels, Ltd., 226 B.R. 797, 802 (Bankr. S.D.N.Y. 1998).

After taking into account the factors outlined by the Eleventh Circuit in Wallis v. Justice Oaks II, Ltd. (In re Justice Oaks II, Ltd.), 898 F.2d 1544, 1549 (11th Cir. 1990), the Court finds: (a) that the Trustee acted reasonably in entering into the proposed settlement; and (b) that the settlement is clearly above the lowest point in the range of reasonableness. Accordingly, theCourt will grant the Trustee's Motion and approve the proposed settlement with NBV and accompanying sale of personal property.

JURISDICTION

This Court has jurisdiction to consider this Motion pursuant to 28 U.S.C. § 1334. This matter is a core proceeding that this Court may hear and determine pursuant to 28 U.S.C. § 157(b) and neither the Trustee, the Objecting Parties, nor NBV have objected to the entry of a final order on this matter by this Court.

GENERAL BACKGROUND

On April 22, 2010 (the "Petition Date"), the Debtor filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code. As of the Petition Date, the Debtor was the developer and owner of the luxury residential condominium development known as Cielo on the Bay ("Cielo" or the "Property") located at 7935 East Drive, North Bay Village. Cielo contains 35 residential condominium units (the "Condominium Units").

On or about December 28, 2005, the Debtor executed a construction loan agreement (the "Loan Agreement") with Northern Trust Bank, N.A. ("Northern Trust"), whereby Northern Trust made a construction loan (the "Loan") to the Debtor in the aggregate principal amount of $16.9 million. The Loan was evidenced by a promissory note (the "Note") executed by the Debtor in favor of Northern Trust in the principal amount of $16.9 million, which in turn was secured by a first priority mortgage, assignment of rents, security agreement, financing statement, and fixture filing executed by the Debtor in favor of Northern Trust (the "Mortgage").

On or about February 14, 2006, Northern Trust perfected its security interest in the real property and in "fixtures" by recording the Mortgage with the clerk of court for Miami-Dade County at OR Book 24237, Page 3301-3323, as CFN 2006R0162511.

On or about December 21, 2009, Northern Trust, as Seller, and TMS FL 2, Inc., as Purchaser ("TMS"), entered into a Loan Sale Agreement, pursuant to which Northern Trust sold the Loan to NBV as assignee of TMS.

Avoidance Litigation

On September 10, 2010, the Debtor initiated an adversary proceeding seeking to avoid NBV's security interests in (a) the Estate's interest in purchaser deposits in respect of Condominium Units, and (b) the Debtor's personal property, because neither Northern Trust nor NBV filed a Form UCC-1 Financing Statement with the Florida Secured Transaction Registry naming the Debtor [Adv. Pro. 10-03584-AJC] (the "Lien Avoidance Litigation").

On July 22, 2011, this Court entered its Order (A) Granting Defendant 7935 NBV, LLC's Motion for Summary Judgment on Count II and (B) Denying Debtor's Cross-Motion for Summary Judgment on Complaint to Avoid NBV's Security Interests [Adv. Pro. 10-3584-AJC, ECF No. 48] (the "Deposit Summary Judgment Order"). In the Deposit Summary Judgment Order, this Court granted summary judgment in favor of NBV and determined that purchaser deposits are subject to the Mortgage held by NBV and that the Debtor cannot avoid NBV's liens and security interest with respect to such deposits.

On January 31, 2012, this Court entered its Order and Memorandum Opinion Denying Debtor's Motion for Partial Summary Judgment [Adv. Pro. 10-3584-AJC, ECF No. 58] (the "Personal Property Summary Judgment Order") denying summary judgment. In the Personal Property Summary Judgment Order, this Court rejected the Debtor's contention that the Mortgage altered the classification and perfection scheme under the Uniform Commercial Code, observed that most of the property set forth in subsection (f) of the Granting Clause wouldordinarily constitute "fixtures", and found that a genuine issue of material fact exists as to which property constitutes fixtures under the criteria established by Florida law.

No further proceedings have occurred in the Lien Avoidance Litigation and the Debtor, the Trustee, and NBV have continued the pretrial conference and status conference pending determination of this Motion.

Foreclosure Appeal

On January 13, 2010, NBV filed a Complaint of Foreclosure in the Circuit Court of the 11th Judicial Circuit (the "State Court") against the Debtor and certain other defendants as set forth therein [case no. 10-02180-CA-25].

On May 10, 2011, the State Court entered its Order Granting Plaintiff's Motion for Summary Final Judgment in Foreclosure (the "State Court Summary Judgment") and its Order Denying Defendant's Motion to Strike Affidavit of Bernard Thibault (the "Affidavit Order"). On June 3, 2011, the State Court entered its Final Judgment of Foreclosure against the Debtor and others (the "Foreclosure Judgment") in favor of NBV. Among other determinations, the State Court determined that the Debtor owes NBV $14,997,290.96 after reducing the amount of the Debtor's debt to NBV by proceeds arising from the sale of a condominium unit which were previously remitted to NBV and that NBV's valid lien on the Property "is superior in dignity to any right, title, interest or claim of the defendants."

On or about June 17, 2011, the Debtor filed a Notice of Appeal with the State Court commencing an appeal to the Third District Court of Appeal (the "Foreclosure Appeal") of the State Court Summary Judgment, the Foreclosure Judgment, and the Affidavit Order (collectively, the "Appealed Orders"). The effectiveness of the Appealed Orders has not...